AI Shows Tentative Signs of Lifting Britain Out of Its Slump

No one in the City of London saw Britain’s summer growth spurt coming.

Even the most optimistic economists’ forecasts for July had the economy expanding 0.1%. Growth came in well above the consensus for a flat reading at 0.4%, a month after smashing all predictions in June.

While temporary factors such as sunny weather and the World Cup boosted the economy in June, there were tantalizing signs of a factor that may be more lasting in July: artificial intelligence.

Computer programming, consultancy work and information services are driving growth in the Britain’s powerhouse services sector, the statistics office said Friday, linking it to AI and cloud computing.

“There is a booming landscape of AI startups in the UK, for example, as well as many labs setting up here,” said Bouke Klein Teeselink, an AI expert at King’s College London. “There is an increasing number of firms that sell AI embedded services. That’s AI for your customer relationship management, improving your workflows, or drafting legal documents.”

It’s the first time the technology has been cited as the major driver of official UK growth data, a phenomenon that’s long been seen in the US.

While the jury is still out on whether AI is improving efficiency across the economy, output is clearly being lifted by the selling of services linked to AI.

“Many large firms and organizations have already begun integrating AI and restructuring their workflows around it,” said Apostolos Fasianos, who specializes in the economics of AI at Brunel University. “This does not necessarily mean they have become more productive yet. It means they are investing today in the systems, skills, staff training and organizational changes needed to capture the future gains from AI.”

An AI-related boom may arrive at just the right time for Prime Minister Andy Burnham’s new government, whose first budget next month is looking tricky after this week’s turmoil in energy and bond markets. His Chancellor of the Exchequer John Healey has promised to cut down a thicket of regulation to help revive Britain’s growth rates, which have been lackluster in recent years.

While UK GDP growth of 1% in the first half of 2026 was the best of the Group of Seven economies, it had been expected to slow sharply in the second half as the energy shock caused by the US-Iran war weighs on consumers and businesses.

But forecasters are being forced to reconsider their expectations for growth of just 0.1% in the third quarter after Friday’s figures. Deutsche Bank said the economy now looks set to expand 0.4% in the three months through September.

There were some signs that an AI growth effect was coming down the track. Business investment was up almost 5% in the second quarter compared with two years ago, following tax breaks by recent governments. Investment in digital infrastructure surged to levels last seen in the dot-com boom.

Productivity growth — notably absent since the financial crisis — has also averaged around 2% year-on-year since the first quarter of 2025, though economists believe it may be too soon to credit AI.

Still, those benefits may soon begin to show up in economic data. The Office for National Statistics found that more than a third of UK businesses are using AI, up from 12% in late 2023 — though only 10% reported using the technology extensively. It is already heavily used in sectors such as IT and professional scientific and technical activities.

“We are still near the beginning of the diffusion process,” said Fasianos. “The productivity benefits are no longer purely a promise for the future. They are already visible in some workplaces. The important question is how quickly they spread across firms, occupations and the wider economy.”

While the biggest global AI companies are listed overseas, Britain is one of the economies that stands to gain most from any AI boom given its heavy reliance on services.

The International Monetary Fund said in June that the potential total factor productivity boost in Britain is up to 0.5% per year in the medium term, “clearly above the average of European countries and on par with estimated US gains.” It said UK workers are “both highly exposed and complementary to AI.”

“I’m leaning towards the side that says that we are starting to see productivity improvements,” said Klein Teeselink. “I do think this is starting to emerge.”